Deferred Taxes

Accelerated depreciation methods will result in a?

a) a deferred tax asset this year and a deferred tax liability next year.
b) a deferred tax liability until the year more depreciation is expensed for books than tax.
c) a deferred tax liability until cumulative depreciation expense for books is equal to cumulative
depreciation expense for tax.
d) no impact to deferred tax accounts.
ANS: c) a deferred tax liability until cumulative depreciation expense for books is equal to
cumulative depreciation expense for tax

According to the current tax law a company may carry forward a net operating loss for how
many years?
a) 5
b) 2
c) 17
d) 20
ANS: d) 20

The amount of tax valuation allowance that is recorded in the current year is equal to?
a) the total temporary difference multiplied by the future tax rate
b) the total deferred tax asset multiplied by the % believed to be unrealizable less the current
balance in the allowance method
c) the total deferred tax asset multiplied by the % believed to be realized less the current balance
in the allowance method
d) taxable income x the current tax rate x the % believed to be unrealizable
b) the total deferred tax asset multiplied by the % believed to be unrealizable less the current
balance in the allowance method

The balance in a deferred tax account must always equal to?

a) the current year's book tax difference multiplied by the current rate.
b) the current year's book tax difference multiplied by the future rate.
c) the cumulative book tax difference multiplied by the current tax rate.
d) the cumulative book tax difference multiplied by the future tax rate.
d) the cumulative book tax difference multiplied by the future tax rate

The balance in deferred tax liability account will be equal to?

a) the current temporary difference divided by the future tax rate
b) the cumulative temporary difference up to this point multiplied by the current tax rate
c) the cumulative temporary difference in the future multiplied by the future tax rate
d) all book tax difference multiplied by the future tax rate
c) the cumulative temporary difference in the future multiplied by the future tax rate

A company has a temporary difference of $1 Million related to the use of accelerated

depreciation for tax purposes a portion of this difference will reverse next year the company's
balance sheet will report?
a) a current and non current deferred tax liability
b) a current and non current deferred tax asset
c) a current deferred tax liability only
d) a non current deferred tax liability only
d) a non current deferred tax liability only

A company reports prepaid expenses of $40,000 on their balance sheet the company's tax rate is
30% the company will report on their balance sheet?
a) current deferred tax liability of $12,000
b) current deferred tax asset of $12,000
c) current deferred tax asset of $28,000
d) non current deferred tax asset of $12,000
a) current deferred tax liability of $12,000

A company that sells magazine subscriptions for the entire year and receives one annual payment
prior to sending the monthly magazines to the subscriber will report a?
a) deferred tax asset
b) deferred tax liability
c) permanent difference
d) either a deferred tax asset or liability depending on the amount collected
a) deferred tax asset

The cumulative effect of a change in a future tax rate is?

a) reported as an extraordinary item
b) reported as a cumulative effect on change in accounting
c) reported as part of income from continuing operations
d) reported as a correction of an error in the statement of stockholder's equity
c) reported as part of income from continuing operations

A deferred tax asset gives a situation where?

a) future taxes paid are equal to future tax expense.
b) future taxes paid are less than future tax expense.
c) future taxes paid are more than future tax expense.
d) income before tax is less than taxable income.
b) future taxes paid are less than future tax expense

A deferred tax asset occurs when?

a) there are more tax deductions than book expenses in the current year.
b) there are less tax deductions than book expenses in the current year.
c) there is more revenue for books than tax in the current year.
d) none of the above
b) there are less tax deductions than book expenses in the current year

A deferred tax difference is considered current or non current based on?

a) the corresponding book tax difference that causes the deferred tax.
b) when the company expects to pay more or less taxes.
c) when the deferred tax situation is expected to reverse.
d) all of the above.
d) all of the above

Deferred taxes are reported on the balance sheet?

a) with only one account that nets all deferred tax accounts.
b) with always a deferred tax asset and a deferred tax liability.
c) as current and non current.
d) as only current or non current but not both.

c) as current and non current

A deferred tax liability gives a situation where?

a) income before differences is greater for tax than for books
b) future taxes paid are less than future tax expense
c) future taxes paid are more than future tax expense
d) future income before tax is more than future taxable income
c) future taxes paid are more than future tax expense

A deferred tax liability occurs when?

a) there are more tax deductions than book expenses in the current year.
b) there are less tax deductions than book expenses in the current year.
c) there is less revenue for books than tax in the current year.
d) none of the above
a) there are more tax deductions than book expenses in the current year

Deferred Tax occurs because?

a) there is a permanent difference in taxable income and book income.
b) there are temporary differences in taxable income and book income.
c) some items are never reported on a tax return.
d) a company is able to delay paying current year taxes owed.
b) there are temporary differences in taxable income and book income

A deferred tax valuation allowance is required when?

a) it is more likely than not that the deferred tax asset will not be realized.
b) it is not likely that the deferred tax asset will not be realized.
c) it is very likely that the deferred tax asset will be realized.
d) there is a deferred tax liability.
a) it is more likely than not that the deferred tax asset will not be realized

An expense recorded for books related to employee stock options in the current year will give
rise to?

a) a deferred tax asset

b) a deferred tax liability
c) either a deferred tax asset or liability depending on the exercise price
d) a permanent difference
a) a deferred tax asset

Fines and penalties paid are?

a) deferred tax assets
b) deferred tax liabilities
c) temporary differences
d) permanent differences
d) permanent differences

An increase in deferred tax liabilities is reported on the indirect statement of cash flows as?
a) an increase to income tax expense
b) an addition to net income
c) a financing activity
d) an investing activity
b) an addition to net income

In its first year the company reports unearned revenue of $25,000 and a tax rate of 40% the
company will report?
a) a deferred tax asset of 10,000
b) a deferred tax asset of 15,000
c) a deferred tax liability of 25,000
d) a deferred tax liability of 10,000
a) a deferred tax asset of 10,000

A loss before tax reported on the income statement may be?

a) carried forward only when there is taxable income in the past two years
b) carried back only when there is taxable income in the past two years
c) carried back or carried forward at the discretion of the tax payer
d) none of the above

d) none of the above

A "Net Operating Loss" for tax purposes occurs when the company?
a) reports a net loss on their income statement.
b) reports a net loss on their tax return.
c) incurs more expense than revenues.
d) pays more taxes than reported tax expense.
b) reports a net loss on their tax return

A NOL carry back may be carried back 2 years and is recorded as a?

a) liability
b) receivable
c) deferred tax asset
d) deferred tax liability
b) receivable

A NOL carry forward may be carried forward for 20 years and recorded as a?
a) liability
b) receivable
c) deferred tax asset
d) deferred tax liability
c) deferred tax asset

A prepaid expense at year end will result in a?

a) a deferred tax asset this year and a deferred tax liability next year.
b) a deferred tax asset until the prepaid is expensed for books.
c) a deferred tax liability until the prepaid is expensed for books.
d) no impact to deferred tax accounts.
c) a deferred tax liability until the prepaid is expensed for books.

A tax carry forward?

a) increase the current period net income

b) increase the company's receivables

c) increase the deferred tax asset account
d) both a and c
d) both a and c

A tax receivable may be recorded when?

a) the company has taxable income in the current year
b) the company has book income in the prior year
c) the company has taxable income in the prior year
d) the company elects to carry forward the net operation loss
c) the company has taxable income in the prior year

A tax valuation allowance is used to reduce?

a) a deferred tax asset
b) a deferred tax asset or liability
c) taxable income in the future
d) book income in the future
a) a deferred tax asset

A temporary difference?
a) will always reverse in the next year.
b) will always net to no difference for all cumulative years.
c) is only related to expenses.
d) relates to this year's tax return only.
b) will always net to no difference for all cumulative years

A temporary difference that records more expense for books than for tax in the current year will
result in a?
a) deferred tax asset
b) deferred tax liability
c) deferred tax asset for the current year and a deferred tax liability for future years.
d) deferred tax liability for the current year and a deferred tax asset for future years.
a) deferred tax asset

An unrealized loss on investments will create a?

a) permanent difference
b) deferred tax asset
c) deferred tax liability
d) tax carry forward
b) deferred tax asset

When a company records a tax valuation allowance the company believes that?
a) it is more likely than not the deferred tax asset will be realized
b) it is more likely than not the deferred tax asset will not be realized
c) there is a greater than 35% chance the deferred tax asset will be realized
d) the tax receivable may not be collected
b) it is more likely than not the deferred tax asset will not be realized

When preparing the balance sheet?

a) total deferred assets and total deferred liabilities are reported
b) total current and non current deferred tax is reported
c) all deferred tax accounts are considered non current
d) the amount reported will equal the current temporary differences
b) total current and non current deferred tax is reported

When recording deferred taxes the tax payable account and the deferred tax account are recorded
and tax expense recorded is?
a) the amount that makes the journal entry balance.
b) always equal to taxable book income multiplied by the current tax rate.
c) always equal to taxable income multiplied by the future tax rate.
d) equal to cumulative book tax differences multiplied by the future tax rate.
a) the amount that makes the journal entry balance

When tax rates change after the temporary difference has created a deferred tax asset or deferred
tax liability the company must?
a) retroactively adjust the deferred tax on all statements presented

b) adjust the deferred tax account similar to other changes in estimates

c) adjust only the current year difference for the new tax rate
d) ignore the new tax rate change for prior year differences
b) adjust the deferred tax account similar to other changes in estimates

When the tax rate changes in future years income tax expense will be?
a) the difference between taxes payable and the change in the deferred tax accounts
b) the difference in income before taxes and the cumulative change in the temporary differences
c) income before taxes multiplied by the current tax rate
d) income before taxes multiplied by the future tax rate
a) the difference between taxes payable and the change in the deferred tax accounts

Which of the following are considered permanent differences?

a) fines and penalties paid by the company
b) municipal interest earned
c) life insurance proceeds received on key executives
d) all of the above
d) all of the above

Which of the following is a temporary difference between taxable income and income reported
on the income statement?
a) a net operating loss
b) computing depreciation using the tax depreciation tables
c) recording interest received as income
d) recording insurance expense when paid
b) computing depreciation using the tax depreciation table

Which of the following is not used when recording income taxes under FASB 109?
a) the expected future tax rate
b) the difference in expenses incurred and expenses paid for all periods
c) the current tax rate
d) the present value of future deductions
d) the present value of future deductions

Which of the following is required when recording income taxes?

a) the deferred tax method
b) the temporary identification method
c) the tax expense method
d) the asset/liability method
d) the asset/liability method

Which of the following will create a deferred tax asset?

a) prepaid expenses
b) revenues earned and collected in the prior period.
c) accelerated depreciation.
d) unearned revenues
d) unearned revenues

Which of the following will create a deferred tax liability?

a) prepaid expenses
b) straight line depreciation for books and tax
c) bad debt expense
d) rent expense incurred this year and paid next year
a) prepaid expenses

Which of the following will not lead to a deferred tax account?

a) unearned revenues
b) prepaid expenses
c) expenses incurred and paid in the current period.
d) revenues earned and collected in different periods.
c) expenses incurred and paid in the current period

Which of the following will result in a decrease to a deferred tax liability?

a) incurring operating expenses that are not yet paid
b) collecting revenues in advance of performing the service

c) paying claims on a warranty that was expensed in the prior period

d) none of the above
d) none of the above